Pearse Doherty (Donegal, Sinn Fein)
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154. To ask the Minister for Finance if the Central Bank will carry out an investigation into specific mortgage loans made by banks to their own directors as reported in the media on 16 May 2018 or examine this issue in its generality; and if he will make a statement on the matter. [22412/18]

Paschal Donohoe (Dublin Central, Fine Gael)
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The Central Bank of Ireland continues to supervise banks as part of its ongoing supervisory engagements on credit risk matters which includes their compliance with the Code of Practice on Lending to Related Parties 2013 (available here: ).

In order to guard against abuses in lending to related parties and to address possible conflicts of interest, the Central Bank requires that such lending be on an arm’s length basis and subject to appropriate management oversight and limits. Arm's length basis means that the parties to a transaction are independent and on an equal footing. A related party is a director, senior manager or significant shareholder of the credit institution or an entity in which the credit institution has a significant shareholding, as well as a connected person of any of the aforementioned persons.

Connected Persons and Clients are:

(a) a spouse, domestic partner, civil partner (within the meaning of the Civil Partnership and Certain Rights and Obligations of Cohabitants Act 2010) or child (whether natural or adopted) of a person;

(b) two or more natural or legal persons who, unless it is shown otherwise, constitute a single risk because one of them, directly or indirectly, has control over the other or others; or

(c) two or more natural or legal persons between whom there is no relationship of control as set out in point (b) but who are to be regarded as constituting a single risk because they are so interconnected that, if one of them were to experience financial problems, the other or all of the others would be likely to encounter repayment difficulties.

The Code of Practice on Lending to Related Parties 2013("the Code") is imposed pursuant to Section 117 of the Central Bank Act 1989 on banks incorporated in the State licensed under Section 9 of the Central Bank Act 1971, including those designated under the Asset Covered Securities Act 2001 and on building societies authorised under the Building Societies Act 1989. Separately from this document, the reporting requirements described in Part 7 of the Code will be imposed from time to time pursuant to Section 117(3) (a) of the Central Bank Act 1989.

The original 2010 Code came into force on 1 January 2011. This revised Code came into force on 1 July 2013. When granting or dealing with loans to related parties the Code provides that:

a) a credit institution shall not grant a loan to a related party on more favourable terms (including without limitation terms as to credit assessment, duration, interest rates, amortisation schedules, collateral requirements) than a loan by the credit institution to non-related parties. An exemption is permitted for beneficial terms that are part of a remuneration package available to staff of the credit institution generally (e.g. staff loans at favourable rates) provided that such terms have been approved by the Board;

b) a loan to a related party, or any variation of the terms of a loan to a related party, shall be subject to individual prior approval by the Board or a subcommittee of the Board established specifically to deal with related party lending where that subcommittee reports directly to the Board. Board members with conflicts of interest shall be excluded from the approval process;

c) actions in respect of the management of a loan to a related party (including but not limited to permitting interest roll-up, granting a grace period for payment, loan write-off in whole or in part, provisioning against a loan, decisions to take or not to take enforcement action) shall be subject to individual prior approval in writing by the  Board or a subcommittee of the Board established specifically to deal with related party lending where that subcommittee reports directly to the Board;

d) where loans to a related party will exceed one million Euro the prior approval of the Central Bank is required.

The tax system provides for preferential loans to be treated as benefits in kind, which ensures that beneficiaries pay universal social charge, pay as you earn and pay related social insurance on the benefit. This tax treatment is important in terms of the equity of our income tax system.